The Truth About Buying Distressed Real Estate; Are Short Sales and Foreclosures Really a Good Deal?

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There is no doubt about it. Some buyers have landed incredible deals buying real estate that was sold either as a short sale, foreclosure or bank owned property. But was there really a deal?  The truth is that it all depends. It depends on whether or not you found a property in good, sale-able condition. It also depends on the location of the property plus its potential value in the long run. Either way, buyers that do opt to pursue a distressed property in their home-buying endeavors will face some challenges.

Timing Is Everything – And Distressed Sale Timing Is Unpredictable
Let’s say you found your dream home – or maybe you found a distressed sale property in a location that you have always desired but could never afford, until now. Though it sounds like a win-win situation with a potentially lower price and the great location – it is important to keep in mind that the process can drag on unpredictably. Unlike conventional sales, distressed sales are dependent on the bank (or banks) involved and entail several more steps than a conventional property purchase.

At the beginning of the post-market crash period when short sales first began appearing more frequently in the market, many buyers were dismayed to find that the process could take as much as a year in some cases. The reason for this is that banks must approve the purchase price that was set by the seller. Since in the case of short sales, the bank is owed more money than what the property is worth, there is a sizable difference that must be reconciled upon sale. So when you make an offer on such a property hoping to get a good deal, the bank has to agree to that price first.

More recently, short sales have become more streamlined and can take a lot less time but still the process can add up to months of waiting – something difficult to manage for buyers that are also selling their home. Further, if the purchase is taking place due to a time-sensitive situation such relocation then the timing can be a deal breaker.

Financing Required for Distressed Sales May Be More Difficult to Obtain
One fact about traditional financing that many buyers may not realize is that lenders require certain viability on the properties they lend against. Of course this is because the property serves as collateral against the loan. But when dealing with short sales or foreclosed properties this can become roadblock since a lot of these properties are without major components of the home. Things like an incomplete kitchen, uninhabitable bathrooms or unusable living space can hinder a bank’s willingness to accept a mortgage.

With interest rates as low as they are and inventory fast dwindling in many areas – this is the time to buy if you are looking to buy. But the good deals go beyond just distressed properties so it is important to work with a real estate agent that can provide you the sort of guidance necessary to tap into all areas. Time is running out though – so we advise you to contact us today!


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